JAKARTA (Reuters) - Indonesia’s nickel-related industries such as the production of stainless steel and battery materials are set to surpass the value of its second-biggest export earner, palm oil, in the next 10 to 15 years, its investment board chief said on Wednesday.

Chief of Indonesia's Investment Coordinating Board (BKPM) Thomas Lembong gestures as he talks during an interview with Reuters at his office in Jakarta, Indonesia, March 27, 2019. REUTERS/Willy Kurniawan

Southeast Asia’s biggest economy suffered a drop in foreign direct investment last year, but one area that attracted more overseas money was nickel processing, including a $4 billion Chinese-led project to produce battery-grade nickel chemicals to power electric vehicles (EVs).

Indonesia is also set to overtake Japan and India to become the world’s second-biggest producer of stainless steel behind China, when it reaches an industry ministry target of producing 4 million tonnes a year from its main production site at Morowali, on the island of Sulawesi.

“Our palm oil industry is worth about $18 to $20 billion in exports. I could see nickel and its derivatives, stainless steel, carbon steel, lithium-ion battery cells, surpassing that in the next 10 to 15 years,” Thomas Lembong, chief of the Indonesia Investment Coordinating Board, said in an interview.

Indonesia’s large nickel laterite ore reserves - prized for nickel pig iron used in stainless steel production - are also a vital ingredient for lithium-ion batteries used to power EVs.

“Tsingshan is in the lead, but there are at least two other Chinese conglomerates who are catching up to them,” said Lembong, who predicted three to four major manufacturers would eventually emerge in the battery sector.

The industrial park in Morowali and another $10 billion park being built on the island of Halmahera are part of Beijing’s Belt and Road Initiative, but Lembong noted that Tsingshan was also bringing in Japanese investors to take a 40 percent stake.

“To me that’s a great example of where Belt and Road is going. More open, more inclusive, professionalised,” he said.

Indonesia has a history of simmering resentment towards China and a minority ethnic Chinese community so investment from its giant neighbor can be sensitive.

Reports have circulated on social media suggesting the Chinese-led project had brought in a huge influx of Chinese workers, although authorities say only around 3,000 workers are foreign out of nearly 30,000 in Morowali.

“I predict the public will realize the benefits of these investments fast enough to swing public support around to become very supportive of Chinese investment in years to come,” Lembong said.

Indonesia, the second-largest car production hub in Southeast Asia after Thailand, has also been looking to position itself as a global hub for producing and exporting EVs to Asia and beyond.

Indonesia has announced plans to introduce a fiscal scheme that will offer tax cuts to EV battery producers and automakers, as well as preferential tariff agreements with other countries that have a high EV demand.

Industry Minister Airlangga Hartarto said on Feb. 13 that Indonesia aimed for 20 percent of vehicle production to be EVs by 2025, representing about 400,000 vehicles.

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The deputy minister for industry, Harjanto, also said last December that Hyundai Motor Co, the world’s fifth-largest automaker, plans to start producing EVs in Indonesia as part of an $880 million auto investment.

Lembong declined to name potential EV investors, saying that “it’s quite a leap” from producing batteries to building EVs, at least until domestic usage grows.

“If you don’t have a large user base of EV, then why bother producing here. But electric cars are not going to take off for as long as diesel and gasoline are subsidized,” he said.